Hellofresh Se Ord

Good morning, everyone. We're pleased to welcome you to our Q1 2023 earnings call today. I think we're just off of a very solid first quarter, especially considering the world we were living in last year. First time over 2 billion euros per quarter, profitability better than guided as we made more progress on many cost initiatives. And our RTE business has been going very strongly, yet its capacity constraints since middle of January. Over the course of last year and also the last quarter, we've dealt with a rapidly changing macroeconomic environment in which the team overall showed great adaptability. If you remember last year in Q1, Omicron wave still rampaged through the world. Google recorded the highest search volumes for COVID and different governments were actually mandating stay at home orders. And all these things contributed to a really outsized first quarter in Q1 2022. and has provided a tough benchmark year over year for the first half of 2023. We don't want to lament though too much as these macro effects, I think, impact all businesses around the world. We rather want to focus on the things that we actually can control. And that's also the message that we have given to our teams and rallied our troops around all year long. Consequently, over the course of the last 12 months, we've made very significant progress in a number of different areas. We've massively strengthened our leadership levels. We've built a state of the art fresh food fulfillment center network second to none. We have enhanced our customer proposition to previously unseen levels. And we've also scaled both RTE and our prototyping a number of other promising direct to consumer verticals as we speak. This all makes us look fairly optimistic into the second half of the year. and also provides the right ingredients for ongoing strong growth beyond 2023. So let's take a look at the highlights of the first quarter together. We achieved a new record high net revenue quarter, growing 3.3% in constant currency to 2.02 billion euros, the first time we beat the 2 billion euro mark. We grew our average order value by about 9% year over year, to 61.2 euro, a result of measured price increases, more meals per basket, and a positive mix shift to higher value brands. We delivered more value to customers, and they are happy to pay a little more for that. Order rates stabilized at the same high levels that we've seen during the COVID pandemic at four orders per active customer per quarter, a significant step up to pre-COVID times and evidence that customers are finding a lot of value in our product offering. Importantly, our exercise to scrutinize all of our cost line items yielded good results, with contribution margin expanding once again to 26.3%. That's a 1.1 point improvement compared to Q1 2022. As a result, adjusted EBITDA amounted to 66 million euro, which translates into a margin of 3.3% in the quarter where we actually spend most on winning over new customers. All in all, I think this provides a decent start to the year that makes us confident we can deliver on the full year guidance that we issued just a few weeks ago. All of 2022 and also in the first quarter of 2023, we have scrutinized all of our cost line items hard to identify additional savings and optimization potential. More often than not, we've been successful and managed to mitigate all of the inflation-driven cost factor increases through either better productivity or smarter buying decisions. And while it's incredibly important to do that in times like these, it's also when the foundations for future earnings and revenue growth are being laid. And that is why we have continued to invest into the customer proposition throughout the whole cycle in order to be able to attract new audiences to HelloFresh and make our current active customers happier. So as an example, over the course of last year, we have continued to roll out HelloFresh markets to three new geographies with additional geographies launching in the second half of 2023. We have materially decreased our food waste per Euro revenue significantly, thereby improving our sustainability profile and sustainability perception for consumers. And we have massively increased the number of recipe options for our customers. In the last year alone, we have increased the number of weekly recipes by 32% year over year, and the share of customizable meals from 29% to 48% on the menu. These improvements are even more visible when looking at them on a longer time series. Unlike FMCG companies, we have paired measured price increases with providing a lot more value to customers, which has led to very high and consistent average order rates. All of these improvements have allowed us to significantly increase both AOV and average order rates compared to the pre-pandemic era, and allowed us to reach out to broader customer segments in the markets that we operate in today. Outside of our core meal kit market and our HelloFresh market proposition, we've put the whole weight of our direct-to-consumer competencies behind the rollout of Factor in the US. This has propelled us to become the largest direct-to-consumer ready meal provider in the States over the course of only two years. The whole category is still very much in a state of market penetration where meal kits were in 2016 or 2017 with incredible growth potential going forward. What's important to notice that scaling an RTE business is way more complex than a meal kits business given investments needed to cook great meals at scale. As we complete the build out of our Arizona facility in the next couple of months, we will unlock a lot of additional capacity for factory US allowing us to grow to a multiple of our current revenue run rate in the then existing facility footprint. As a matter of fact, at the moment, we're maxed out since early January and cannot fulfill a lot of the demand we're seeing in the marketplace. But this should, on the other hand, provide a nice growth tailwind for the second half of the year as we work through opening up that facility. While Factor already meets the bar in many respects and can create a lot of demand from consumers, there's still a lot of room to grow the proposition, very much analogous to what we did in meal kits over time. We'll be investing into growing our assortment, opening more delivery days and shortening order to delivery leads times, which should open up new audiences for us. Outside of the US, we've also launched Factor in Canada, we will be launching the first ready-to-eat product in Europe in the second half of the year. And for You Foods, our Australian ready-to-eat business, we're in the final steps of completing our facility move and also look towards scaling up production and customer acquisition in the second half of the year. So all in all, RTE provides both for 2023 and also for the mid-term future, a strong growth driver for the group And we're incredibly excited to take full advantage of that. In the first quarter of 2023, we delivered 278 million meals. That's a sequential increase of about 13% versus Q4 2022. Year over year, our meals are down by 3%. driven by a 5% decline in active customers. Active customers did increase though by 14% sequentially, and we've added 1 million net new customers in the first quarter. Both our international segments and our North America segment contributed to that growth and showed good sequential active customer growth rates. While the sequential increase was according to plan, we did not reach the levels previously seen in Q1 2022, a period that was still heavily impacted by stay-at-home orders and people working from home. On a positive note, our average order rates stabilized at much higher levels than pre-COVID, averaging four orders per active customer per quarter, in line with last year's order rate. We've also seen customers adding more meals to their baskets, which have helped drive up Speaking of AOV, average order values saw a strong growth in the first quarter, up about 9% from last year. For our North America segment, we increased AOV by about 9.5% in constant currency, while our international segment showed a 6.9% AOV increase. This positive development was driven by different factors. most notably by higher prices per meal, customers adding more meals to their basket, but also by a slight mix shift to higher average order value products and the take up of HelloFresh market. So despite strengthening our relative affordability by increasing prices a lot less than overall food CPI inflation data suggests, AOV increases were still the primary driver of higher year-over-year net revenue in the first quarter. So taking all of that together, a small decline in the number of meals shipped paired with a strong increase in the average order value have allowed us to show positive year-over-year net revenue growth with a 3.3% constant currency increase compared to the first quarter of 2022. We achieved over €2 billion in net revenue for the first time making that a record quarter for HelloFresh, even higher than the until then record quarter in Q1 2022. Our North America segment contributed with 5.5% constant currency growth, while our international segment remained broadly stable against a very tough comp, down 0.5% in constant currency, to be precise. What we did see last year was that North America was coming out of COVID much earlier, whereas in international, especially in Europe, Q1 was still a very, very tough benchmark, and most people still working from home and were being mandated to shelter at home. With that, I'm going to hand over to Christian to walk you through our margin profile and our adjusted EBITDA outlook.

Okay, super. So let me start as usual with the discussion of our procurement expenses. Our procurement expenses as percentage of revenue have increased by 1.4 percentage points year-on-year in the first quarter. Now, this is driven by a number of factors. Firstly, year-on-year inflation. Still meaningful year-on-year inflation has a certain impact on our procurement expenses. Even so, we continue to manage mitigating the effect well through measures that we had discussed before. Secondly, and importantly, an increased contribution of ready-to-eat to our overall business mix. Keep in mind that new production costs and associated labor are for our ready-to-eat business included in our procurement expenses or better called COGS. However, fulfillment expenses, on the other hand, for ready-to-eat are typically lower. So you will see the flip side of that when we talk about our fulfillment expenses. Thirdly, what Dominic just discussed, so our customers ordering more meals per order, ordering more surcharge offerings and add-on offerings from HelloFresh market. Especially those last two points, whilst they're impacting relative procurement expenses, they also increase AOV and have lower incremental fulfillment expenses associated with them. They are therefore net accretive to contribution margin, both relative and in absolute terms. For Q2, by the way, you should expect procurement expenses as percentage of revenue to go down slightly sequentially, i.e. our gross margin in Q2 is expected to expand mildly sequentially versus Q2. But let's have a look now at our fulfillment expenses. We have very meaningfully decreased our fulfillment expenses year on year by 2.4 percentage points. This is really the continuation of the strong improvement that you've seen from us since mid last year. Especially our North America segment continues to contribute significantly to this positive trend. As we had discussed in detail at our capital market day last month, we see meaningful potential to further reduce our relative fulfillment expenses from here by one, increasing the maturity of our fulfillment center network through optimizing our fulfillment center footprint and through process standardization. And secondly, by ramping up the use of technology and automation. Besides the like for like ongoing improvements, You see here also the flip side of what I just discussed with respect to our procurement expenses, i.e., the impact of a higher share of ready-to-eat, more meals per order, more surcharge, and add-on take-up, which means lower relative fulfillment expenses. Now, taking both together, so the trends that we discussed in procurement as well as in our fulfillment expenses means for our contribution margin, that we have successfully expanded our contribution margin by one percentage point to 26.3%. So just to recap what we discussed in much more detail at our Capital Markets Day a month ago, we are targeting to expand our contribution margin to approximately 29% by 2025. i.e. up circa 3.5 percentage points versus where we landed in 2022. Of this improvement, we want to realize at least one percentage point in 2023 already. What we see here from our Q1 results is that so far we are well on track to do that. Now let's have a look at our marketing expenses for Q1. From a marketing perspective, we are now back to our normal seasonality profile, i.e. a seasonally high growth marketing spend in Q1, which drives a substantial sequential increase in active customers. We grew active customers by 1 million from 7.1 million in Q4 2022 to 8.1 million in Q1 2023. As a percentage of revenue, marketing expenses were just above 20%, i.e. very much in line with indicative guidance provided at our last earnings call in early March, about eight weeks ago. Now, while in Q1, marketing as percentage of revenue was still around about three percentage points higher than in the comparative period last year, given Q1 2022 was still impacted by Omicron effect, we expect in Q2, marketing expenses as percentage of revenue still a bit higher than last year, but much closer, so around about a one point delta between the two periods. With that, let's have a look at the development of our EBITDA. Given the return to normalcy reality in our marketing spend based on the trends just discussed, we delivered an EBITDA in Q1 of 66 million. This is 33 million lower than last year. GIMP Q1 2022 still had some Omicron effects, but it is a touch better than what we had initially penciled in for Q1 EBITDA. The reasons for that are one, the contribution margin was slightly better than what we originally set as a target. And secondly, that EBITDA in Q1, which is seasonally compressed, very much depends on how some of our marketing campaigns in the latter half of the quarter are exactly sized. The more important point from what we showed you now is as a key takeaway, we had an overall decent start. So far, things are very much in line with plan and that cuts really across our whole P&L in terms of orders, customers, revenue, and EBITDA. We are therefore on track. With respect to the full year guidance provided on our earnings call about eight weeks ago, where we were targeting for the full year, two to 10% constant currency revenue growth and the EBITDA of 460 to 540 million euros. Now with respect to Q2, it's obviously still relatively early in the quarter. So far, current trading mostly consists of the seasonally slow Easter weeks. So with that caveat in mind, We indicatively expect for Q2 2023 active customers of approximately 7.7 million, and year-on-year content-county revenue growth of 1% to 2%. And then, as we discussed before, again, easier comps in H2, a reacceleration of top line thereafter. Let me now finish our presentation with a quick review of our cash flow in Q1. Cash flow from operations amounted to 112 million, as usual, supported in that quarter by seasonal cash inflow from working capital. Our cash outflow from investing activities primarily consists of two elements. Firstly, we run about 95 million of capex, as flagged a few times before. Of the approximately 350, 360 million capex we're planning to spend this year, we will invest a fair amount of this in the first seven to eight months of the year. Specifically in Q1, we have made good progress on the ready-to-eat facility for Factor in the US. We finished the build-out of our ready-to-eat production facility for YouFood in Australia. We largely finalized the build-out of our French fulfillment center and also made good progress on the execution of our overall CapEx plan in other geos. 95 million capex is the biggest piece of this. And the second one is 35 million for the acquisition earn out of factor. This represents not a final payment to former factor shareholders, i.e. there's no more cash outflow in this regard in the future. This means we maintain our cash balance at a strong 467 million. Our balance sheet remains largely unlevered. and there were no changes to our liquidity resources during the quarter. One last housekeeping point just before we turn to Q&A. Just to remind you that from a segment reporting perspective, as we mentioned in our annual report already and at the Capital Market Day, we report our Canadian business as of this quarter as part of a North America segment. So that has moved from our international segment over to our North America segment. And with that, we very much look forward to your questions.

And the first question comes from William Woods. Please go ahead.